HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>We believe there is room for <a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a> to raise dividend payout ratio moderately, following that of <a href="https://www.smartkarma.com/entities/anhui-expressway-co-ltd-h" target="_blank" data-smartkarma-citation="entities:5236:1" rel="noopener">Anhui Expressway (995 HK)</a> and <a href="https://www.smartkarma.com/entities/shenzhen-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2875:1" rel="noopener">Shenzhen Expressway (548 HK)</a>. </li>
<li>It has a comparable gearing with SZEX, positive earnings outlook, improved operating cash flow and manageable capex which all are supportive to raise payout ratio.</li>
<li>If it increases to 55% payout, versus an average of 45.6% previously, we estimate the stock is trading on attractive dividend yield of 11.3% and 12.4%, respectively for FY21-22.</li>
</ul>


We believe there is room for Zhejiang Expressway Co H (576 HK) to raise dividend payout ratio moderately, following that of Anhui Expressway (995 HK) and Shenzhen Expressway (548 HK). 
It has a comparable gearing with SZEX, positive earnings outlook, improved operating cash flow and manageable capex which all are supportive to raise payout ratio.
If it increases to 55% payout, versus an average of 45.6% previously, we estimate the stock is trading on attractive dividend yield of 11.3% and 12.4%, respectively for FY21-22.


Zhejiang Expressway (576 HK): Is There Any Room for Higher Dividend Payout?

After reporting an 8.65x surge in profit in 1H21, we think there are three drivers that should bring better outlook for <a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a> (ZJEC) over the next twelve months. These positive factors include further rebound in traffic and toll revenue, additional contribution from new projects and good upside from profit of <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities Co Ltd (601878 CH)</a>. YTD, share price of ZJEC increased by 10%, but we still see good upside potential given that it trades on only 0.9x P/B for FY21 and its ROE for 1H21 already reached 10.1% (before annualised). On earnings valuation, its 5.7x and 5.0x PER for FY21 and FY22, respectively, also appeared very attractive, in our view.

After reporting an 8.65x surge in profit in 1H21, we think there are three drivers that should bring better outlook for Zhejiang Expressway Co H (576 HK) (ZJEC) over the next twelve months. These positive factors include further rebound in traffic and toll revenue, additional contribution from new projects and good upside from profit of Zheshang Securities Co Ltd (601878 CH). YTD, share price of ZJEC increased by 10%, but we still see good upside potential given that it trades on only 0.9x P/B for FY21 and its ROE for 1H21 already reached 10.1% (before annualised). On earnings valuation, its 5.7x and 5.0x PER for FY21 and FY22, respectively, also appeared very attractive, in our view. 

Zhejiang Expressway (576 HK): Drivers in Place for Robust Outlook

Bond market data and technology, BondEvalue

BondEvalue

Bond market data and technology

BondEvalue is a Singapore-based Fintech that specializes in bond market data and technology. The company's information services business offers bond market data on hard-currency corporate & sovereign bonds across Asia, Middle East, Europe and the Americas. The data, which includes bond prices, yields, news and analytics, is offered to end investors via interactive Mobile and Web Apps. Investors can sign up for a free trial of the service either via the company's website (https://bondevalue.com) or by downloading the BondEvalue Mobile App (http://onelink.to/wej7jq). BondEvalue is also developing an electronic bond exchange, BondbloX in Singapore that allows investors to trade bonds electronically in smaller sizes (US$1,000 or equivalent). For more information, visit https://www.bondblox.com/

Bond Market Data and Technology

Credit

US Markets were mixed as the S&amp;P was down 0.2%, snapping its 7-day winning streak while NASDAQ, was up 0.2%, at a new record. The June ISM Services index in the US dropped to 60.1 from May’s record high of 64.0 and lower than the forecasted 63.5. US business output continued to expand at the third-fastest rate since October 2009. Real Estate, Consumer Discretionary and IT were up 0.9%, 0.8% and 0.4%, pulling the bourses up while Energy, Financials and Materials down 3.2%, 1.6% and 1.4% pushed them lower. US 10Y Treasury yields dipped 9bp to a four month low of 1.35%. Eurostat eurozone retail sales  rose by more than expected in May. However, German economic sentiment hit its lowest since January, with the ZEW survey at 63.3 in July, lower than the forecasted 75.2. European markets slid across – DAX, FTSE and CAC were down ~1.0%. US IG and HY CDS spreads widened 0.7bp and 4.3bp respectively.  EU main and crossover CDS widened 1bp and 6.6bp respectively. Saudi TASI and Abu Dhabi’s ADX were down 0.3% and 0.2% respectively. Brazil’s Bovespa was down 1.4% higher. Asian markets opened in the red – HSI, Singapore’s STI and Nikkei were down 1.1%, 0.9% and 0.8% while Shanghai was largely flat. Asia ex-Japan CDS spreads were 1bp wider. Chinese property developers’ bonds , including Evergrande , Risesun , Kaisa and Sunac witnessed a sharp fall late on Tuesday. Sri Lanka’s bonds  also made it to the losers list on the overall risk-off sentiment.

Xiaomi, Zhejiang Expressway Launch $ Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top...

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

In this edition of the Smartkarma North Asia Weekly, it summarizes some of the top insights on Smartkarma in the past week covering Japan, HK/China, and the Korean stock markets. The top topics are below:1) POTUS Executive Order: Updated List of Chinese Stocks to Be Deleted by Major Indices2) Kanzhun IPO3) Angelalign IPO 4) China: Allows Families to Have Three Children5) HYBE Rights Offering6) China Infrastructure REITs7) Aihuishou IPO8) Full Truck Alliance IPO9) Enjin IPO10) Xpeng: Positive Momentum Back11) Tesla China Losing Market Share12) CStone Pharma (2616.HK) - Time for a Revaluation13) JD Health Lock-Up Expiration14) Passive Money Tracking KOSPI15) SK IE Tech KOSPI 200 Fast-Entry16) DL Holdings with Recent Tender’s Increased Shares: Index Treatment 17) WH Group (288 HK)

Smartkarma North Asia Weekly: POTUS Order, Kanzhun, Angelalign, & 3 Children Policy in China

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<a href="https://www.smartkarma.com/entities/qilu-expressway-co-ltd" target="_blank" data-smartkarma-citation="entities:27431:1" rel="noopener">Qilu Expressway Co Ltd (1576 HK)</a> is an expressway operator with the concession rights to construct and operate the Jihe Expressway, the Deshang Expressway and the Shennan Expressway. Revenue is derived primarily from tolls collected from users of the expressways. Qilu listed its H-shares on 19 July 2018 at HK$2.50 per H-share to raise net proceeds of HK$1,172.12 million ($151 million). Due to the completion of the merger by absorption of Qilu Transportation by Shandong Hi-Speed Group on 16 November 2020, Shandong Hi-Speed Group and Shandong Hi-Speed Investment owned 38.93% and 5.19% of the outstanding shares. Subsequently, public shareholders accounted for 19.81% of the outstanding shares, which falls below the minimum public float requirement. To date, Shandong Hi-Speed Group has failed to address the minimum public float requirement by its fulfilling its plan to dispose of its H-shares to independent third parties.Today, Qilu entered a trading halt pending the release of an announcement pursuant to the Code on Takeovers and Mergers. Subsequently, Qilu disclosed that <a href="https://www.smartkarma.com/entities/shandong-hi-speed-co-ltd-a" target="_blank" data-smartkarma-citation="entities:7178:1" rel="noopener">Shandong Hi Speed Co Ltd A (600350 CH)</a> intends to acquire the 778.5 million domestic shares (86.50% of domestic shares, 38.93% of outstanding shares) held by Shandong Hi-Speed Group. Post-completion, Qilu’s direct controlling shareholder will be changed from Shandong Hi-Speed Group to Shandong Hi-Speed which may trigger a mandatory general offer for all the shares under Rule 26.1 of the Takeovers code, unless it is granted a waiver from the Executive. Notably, Shandong Hi-Speed and Shandong Hi-Speed Group will jointly seek a waiver from the Executive.<div class="content-highlight">We note that on 20 August 2020, Shandong Hi-Speed Group was granted a waiver from a mandatory general offer by the Executive in relation to the merger by absorption of Qilu Transportation by Shandong Hi-Speed Group. We think that the Executive will grant a similar waiver for the proposed share acquisition. In combination with ongoing challenges to satisfy the minimum public float requirement, we would not chase the shares. </div>

Qilu Expressway Co Ltd (1576 HK) is an expressway operator with the concession rights to construct and operate the Jihe Expressway, the Deshang Expressway and the Shennan Expressway. Revenue is derived primarily from tolls collected from users of the expressways. Qilu listed its H-shares on 19 July 2018 at HK$2.50 per H-share to raise net proceeds of HK$1,172.12 million ($151 million). Due to the completion of the merger by absorption of Qilu Transportation by Shandong Hi-Speed Group on 16 November 2020, Shandong Hi-Speed Group and Shandong Hi-Speed Investment owned 38.93% and 5.19% of the outstanding shares. Subsequently, public shareholders accounted for 19.81% of the outstanding shares, which falls below the minimum public float requirement. To date, Shandong Hi-Speed Group has failed to address the minimum public float requirement by its fulfilling its plan to dispose of its H-shares to independent third parties.Today, Qilu entered a trading halt pending the release of an announcement pursuant to the Code on Takeovers and Mergers. Subsequently, Qilu disclosed that Shandong Hi Speed Co Ltd A (600350 CH) intends to acquire the 778.5 million domestic shares (86.50% of domestic shares, 38.93% of outstanding shares) held by Shandong Hi-Speed Group. Post-completion, Qilu’s direct controlling shareholder will be changed from Shandong Hi-Speed Group to Shandong Hi-Speed which may trigger a mandatory general offer for all the shares under Rule 26.1 of the Takeovers code, unless it is granted a waiver from the Executive. Notably, Shandong Hi-Speed and Shandong Hi-Speed Group will jointly seek a waiver from the Executive.We note that on 20 August 2020, Shandong Hi-Speed Group was granted a waiver from a mandatory general offer by the Executive in relation to the merger by absorption of Qilu Transportation by Shandong Hi-Speed Group. We think that the Executive will grant a similar waiver for the proposed share acquisition. In combination with ongoing challenges to satisfy the minimum public float requirement, we would not chase the shares. 

Qilu Expressway’s Largest Shareholder Seeks Another MGO Waiver

China

Zhejiang Expressway Co., Ltd. is an investment holding company primarily engaged in the design, construction, operation, maintenance, and management of high-grade roads. It also operates a securities business offering broking, asset management, and other financial services. The company was founded on March 1, 1997, and is headquartered in Hangzhou, China.

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Zhejiang Expressway (576 HK)